By Lucy Craymer
WELLINGTON (Reuters) – New Zealand is at growing risk of sliding into a recession in the second half of 2022, some economists said on Friday, as consumers and businesses fret over soaring prices and rising borrowing costs.
New Zealand’s central bank is part way through an aggressive cash rate hiking cycle in an effort to curtail inflation, which has shot to three-decade highs.
Although the ANZ–Roy Morgan’s consumer confidence index released on Friday rose slightly in July, it remains near record lows.
The findings showed people were now more pessimistic than during the 2008/09 financial crisis when the cash rate was roughly four times what is now, or at the start of the COVID-19 pandemic.
“Weak global consumer confidence is a global phenomenon. It’s hard to overstate how much people hate inflation. The rapid rise in interest rates won’t have helped either,” said ANZ economist Finn Robinson in a statement following the release of the confidence survey.
But, he said that sentiment did not yet seem to have translated into lower spending, likely due to the tight jobs market and indications prices are rising.
Thursday’s ANZ Business Outlook survey was just as gloomy, although it remains off lows seen at the start of the pandemic. The construction sector was particularly soft, with residential construction intentions dropping significantly.
Economists say that weakness in the data is painting a picture of a softer second half as higher interest rates start to flow through to actual spending, hiring, and building activity.
ASB Bank said it was not yet forecasting a recession, but the direction of risk was clear, with the outlook in the second half of 2022 looking soft.
“For each month that goes by in which firms’ activity expectations remain negative, the odds of recession creep up,” it said.
(Reporting by Lucy Craymer; Editing by Chris Reese and Kim Coghill)
